Sat, 12 May 2007

I originally wrote this on 06 Jan 2007. On my eighth trip to
India in April, I saw a cleaner using a v-shaped push broom which
could collapse on itself to become narrower. Hooray, Chatrapati Shivaji International
Airport! Good for you! Doesn't mean that the whole country has
learned their lesson, but drop by drop a flood is born.

This is my seventh trip to India. Between them all, I've spent at
least two months in India, starting in 1999. That doesn't make me an
expert on India, but I have noticed a few things which are true
regardless of the country.

Indians seem afraid of improvements in productivity. They very
much seem to have the idea that there is a fixed amount of work.
Improvements in productivity would destroy some of that work, and make
the country poorer. Or perhaps more accurately, it would destroy
the employment of enough voters that they resist change.

Some Indians see this perfectly. The Times of India is running an
India Poised campaign
for 2007. They printed that as a full-page ad in the January 2nd issue.

Intellectually, it's easy to see that improvements in productivity
don't destroy work. Instead, they create the wealth that allows
people to pay for more work. After all, there is always an infinite
amount of work -- what is lacking is the wealth to pay for it.
Emotionally, this is harder to feel, particularly when you are
employed in a field in which productivity improvements destroy your job.

All over Mumbai, I have observed cleaners using these wimpy little
brooms. In the USA, they would hardly even count as being a whisk
broom, and yet in India, they are used to sweep vast areas. A very
small capital investment in a push broom would enable them to clean in
much less time. This would allow them to clean more often, or more
likely, cause some of the cleaners to lose their jobs.

So where do these improvements in productivity come from? They
come from investments. Capitalists spend their money on something to
help people do their jobs better, and expect to receive a fraction of
the improvement in productivity.

Historically, the risk-free rate of return on capital has been 5%
per year. This is the compensation that capitalists demand in return
for spending their money on you, not them. Naturally, some
capitalists are willing to take greater risks and get a much higher
return. The successful ones get lauded, while the losers are
forgotten. This has the unpleasant effect of making capitalists
appear to earn money from doing nothing. They're not. They're
suspending their desire to spend their money (which is worth
compensating them), and they're taking a chance on not getting their
money back (also worth compensating them.)

India tried going without capital during their Soviet Socialist
fanboy days. They're not likely to make that mistake again. Fifty
years of development (more than two generations) of wealth building
lost. And since wealth is correlated with longer lifespan, this has a
very human face on it.